March 2013

The Nation Reviewed

A taxing year

By Judith Brett
Illustration by Jeff Fisher.
Australia’s policy drought

There are many things to dread about the forthcoming election year: set-piece speeches from both sides, full of motherhood aspirations and gangland rhetoric; the ABC’s Tony Jones hectoring ministers and shadow ministers alike; the slow playing out of sleaze in the affairs of Craig Thomson and Peter Slipper; the muddle of federalism on full display as Commonwealth policies are rendered ineffectual by state governments; the shameful mess of Australia’s asylum seeker policy; and above all, incredulity that it has come to this: both of Australia’s great major parties led by people who aren’t considered up to the job. It is very tempting to switch off and wait for Saturday 14 September when, as appears inevitable, Labor will be swept from office.

But explanations that focus on the shortcomings of political leaders don’t get us very far. We need to try to understand the historical reasons for these shortcomings. The big one at present, it seems to me, is that the neo-liberal policy regime which enabled the big structural reforms of the 1980s and ’90s is nearing its use-by date, with nothing on the horizon to replace it. Shared policy regimes, while they last, bring coherence to public life. They link answers to small problems into larger frameworks and provide narratives that allow politicians to explain complex policy issues to electors – and to themselves. This latter point is very important. Most politicians are not policy intellectuals. They are busy people who need quick ways into the complex issues they are expected to be on top of. Today’s politicians, like generals who are always fighting the last war, are still clinging to the neo-liberal verities that served them so well in past decades; they are applying yesterday’s solutions to today’s problems.

To give two examples, one from each side. In Future Proofing Australia, a collection of “answers” for Australia’s future, edited by Liberals Senator Brett Mason and Queensland policy adviser Daniel Wood, there is an essay on competition policy by Kelly O’Dwyer. O’Dwyer replaced Peter Costello as member for Higgins and is deputy chair of the Coalition Deregulation Taskforce. She warns of the dangers of the rise of “new protectionism” and argues that what Australia needs is a new round of microeconomic reform, a renewal of our commitment to competition policy “to prevent back-sliding”. It is not at all clear what particular reforms she has in mind. It is all rather general, with claims about the need to apply competition principles more thoroughly and rigorously, to restart a program that has stalled and “finish the job”. There is nothing about how to engage state governments constructively in a renewed round of microeconomic reform. The current stand-off between the Victorian and Commonwealth governments over health funding, in which hospitals and patients are the losers, does not augur well on this front.

O’Dwyer is an impressive recruit to the federal Liberals, but it is too early in her career to expect her to be a policy innovator. We could perhaps expect more of a veteran, such as Labor’s minister for resources and energy, Martin Ferguson.

One of the biggest cost-of-living pressures on Australian households is rising power prices. These increases are also a problem for business and particularly for Australia’s manufacturers. On top of this, some manufacturers are now fearful that future supplies may not be secure as gas producers favour the export market. Brickworks, Australia’s largest brick and tile manufacturer, is reportedly having difficulties renewing supply contracts from 2015. The Australian quoted Brickworks’ managing director Lindsay Partridge: “How is it that America has so much abundant cheap gas for its local manufacturing, whereas Australia is effectively shutting down manufacturing to export gas?” Yet in the United States, the paradigmatic land of the free market, there is a policy of reserving gas for domestic markets. Surely for Australian manufacturing to literally run out of gas would be a massive policy failure? Ferguson’s response is the market mantra: the market will respond to higher prices by developing new gas fields. But will these new fields be ready by 2015 when Brickworks needs them? And growing resistance from farming communities about turning agricultural land into mines is not in the free market model. Gas supply is a matter for the states – West Australia’s Liberal government is not so in awe of market solutions and already reserves some gas for domestic use. Still, Ferguson’s response exemplifies the sort of lazy thinking one gets when a policy regime is losing its usefulness and starting to fragment.

For this election, both parties are still relying on neo-liberal maxims, such as the need to reduce government spending, to maintain government surpluses and to reduce taxes, all presented as truisms when the circumstances Australia now faces are very different from those of the 1980s. Labor, to its credit, finally moved away from its undeliverable promise to return the budget to surplus, but is being pilloried for it and has no very convincing way of defending itself. The Opposition will keep pointing to the healthy surpluses of the Howard years, as if these were the result only of good management, the more benign economic environment before the global financial crisis playing no part.

The situation we are in today seems to me to be similar to that faced in the 1970s, when the Keynesian policy regime that had guided Western governments since the end of World War II was destroyed by the emergence of “stagflation” – the combination of high unemployment, stagnation and inflation that was not meant to happen in Keynes’ model and for which it had no remedies. By the end of the decade, neo-liberalism had emerged as a new policy regime. Its overarching argument was to give more scope to markets by decreasing the role of the state in the distribution of resources. This was the goal of Australia’s “reform decades” and it had bipartisan acceptance. Privatisation, deregulation, government budget surpluses and national competition policy were the means to achieve it.

The big problem for the coming election year is that, with the usefulness of neo-liberalism waning, neither party has a clear narrative to link its social policy aspirations to its plans for managing the economy. Both have big-ticket social policy initiatives: Labor, the National Disability Insurance Scheme, which the Coalition supports (how could it not?); the Coalition, Abbott’s extraordinarily generous parental-leave scheme. Both also know that there are huge infrastructure deficits that will require federal government funding. In his 31 January address to the National Press Club, Abbott promised an ambitious road-building scheme: Melbourne’s East–West link, Sydney’s WestConnex, Brisbane’s Gateway motorway upgrade, and the completion of the duplication of the Pacific Highway. Labor has the National Broadband Network. Of both sides the concerned elector will ask: where will the money come from? And the answer they’ll get is the neo-liberal answer: from reducing government spending elsewhere.

Yet falling government revenue – all the more so with the Coalition pledging to cut the “great big taxes” on carbon and mining, and with the mining tax delivering so little anyway – is one of the biggest challenges the next government will face. Gillard has been frank about this. She told the National Press Club that the revenue to the government for every unit of GDP is at its lowest since the recession of the early 1990s. Some of the causes, such as increased household saving reducing GST revenue, are likely long term. And we are not in recession. Far from it – hence the heightened public expectations of what governments can afford.

Surely the conclusion is that there needs to be a thorough reworking of the tax base. But both parties are locked in to the position that the only way to pay for their new programs is to cut elsewhere, with neither party either able or willing to spell out what will go. Even the hint of new revenue-raising measures, such as winding back some of the tax breaks on super, is causing a furore. So we can look forward to an election campaign dominated by analyses of who wins and who loses from the two teams’ competing packages of cuts and benefits. Each side will nip and tuck, and trade accusations over details, while we all wait for the next big picture to take shape. 

Judith Brett

Judith Brett is an emeritus professor of politics at La Trobe University. Her latest book is The Enigmatic Mr Deakin.

Cover: March 2013

March 2013

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